Morgan Stanley: Noodles & Co Investors Will Be Excited If Traffic Doesn't 'Ramen Negative'

Morgan Stanley's John Glass maintained an Equal-Weight rating on Noodles & Co NDLS, with a price target of $13.00.

Although earnings are expected to remain constrained in 2016, Glass expressed optimism regarding the company's sales, given that comps have started to stabilize in 2016 and Noodles & Co's marketing would support further improvement.

"There's still plenty to prove out here, and investors aren't likely just yet to rush back in, in our view, until proof of a sustainable recovery is more evident," Glass stated.

Although 4Q15 was not a strong quarter for the company, given that both comps and EPS declined, the analyst believes that there have been some early signs that sales could be reaching a bottom.

Noodles & Co reported its same-store sales for the quarter ahead of the estimate, driven by traffic and pricing. "Mgmt has highlighted that DC stores improved ~200bps in 4Q and ~500bps vs early FY15," the Morgan Stanley report said.

Occupancy rates increased 30 bps year-on-year, while online ordering represented 5 percent of the total sales. The "Made Different" marketing campaign was also launched during 4Q15, highlighting the company's clean, fresh and high quality ingredients.

Management provided FY16 guidance for the first time, guiding to total revenue ahead of the estimate at $505-$515 million, with lower than estimated adjusted EBITDA of $38-$40 million and EPS of 4-8¢ due to lower store margins.

FY16 and FY17 EBITDA and EPS estimates have been lowered.